Key Points:
• Signs of EUR bullishness easing?
• USD continues to gain
• CAD gains as markets reprice interest rate expectations
Recap:
With retails sales, industrial production, and data from the housing market all suggesting continued strength in the US economy, the USD gained throughout the course of yesterday afternoon after initially dropping in the morning. Rate cut expectations for this year were reduced by the money markets, with 2-year treasury yields back above 4%. The spread between US interest rate expectations and that of the UK has narrowed from 142 bps to 94 bps, and between the US and the EU has narrowed from 140 bps to 101 bps. This also explains the continued strength of USD over the course of the month. Fed speak was also mixed last night with one policymaker indicating more hikes to come, whilst others stressed, they wanted to see the impact of hikes so far.
Debt ceiling standoff continues with President Biden and congressional leaders continuing to be optimistic about a deal, whilst Kevin McCarthy continued to warn that the two sides are still far apart.
GBP performance was mixed following data showing perhaps some slackness in the UK job market. But as mentioned yesterday, there was minimal impact in markets slashing rate hike expectations this year.
Over in Germany, May’s ZEW survey showed a continued decline in sentiment with the survey at the lowest for 5 months, suggesting that perhaps the recent optimism in the eurozone is showing signs of waning?
Canada’s inflation numbers showed a surprise uptick in April from 4.3% to 4.4%, causing markets to flip from expecting 0.25% worth of rate cuts to now pricing in 0.12% worth of hikes. GBPCAD declined as a result, taking rates through support levels.
Markets
EUR and USD news in focus today with the headline being the inflation numbers from Europe. The core CPI number as ever will be key, and we will be monitoring implications on interest rate expectations following the release of the numbers. Currently markets are pricing an additional 0.5% worth of rate hikes by September. The question across the desk now is are there cracks showing in the armour of the EUR? Economic sentiment in Germany has been declining across the last few months and the recent slowdown in rate hikes is suggesting perhaps the market has passed peak bullishness on the EUR. Time will tell, but for EUR buyers there may be some value to be had in the coming months.
Strength in the US housing market from today’s numbers will likely add to USD strength, continuing the theme from last week.
Equals Market Analysis– 17th May 2023
Today’s Market Rates
Today’s Interbank Rates at 09:58 am against GBP movement.
GBP>EUR – 1.1477
GBP>USD – 1.2428
EUR>USD – 1.0827
GBP>CAD – 1.6786
GBP>AUD – 1.8718
GBP>SEK – 12.977
GBP>AED – 4.5619
GBP>HKD – 9.7280
GBP>ZAR – 23.849
GBP>CHF – 1.1187
Today’s Speeches
· EUR – ECB De Cos, Elderson, Centeno, and Guindos
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